The phone would be manufactured by HTC of Taiwan, according to the Observer, and would have Google software built in.

The phone could also provide location-based information on nearby restaurants, stores and movie theaters, said the Observer. The paper said the phone wouldn’t appear before 2008.

The move makes sense to analyst Trip Chowdhry of Global Equities Research in San Francisco. Chowdhry, who said he hasn’t heard specifically of talks between Google and Orange, said such a partnership would help Google get its services out to more users.

He said cell phones are programmed to handle information and application from a number of sources. While that gives cell phone manufacturers and carriers flexibility, it means users who specifically want to access Google content must deal with slow menus, inefficient interfaces and low-resolution output.

“Phones are not crafted for Google applications; they are all things to all people and because of that all of the experiences on the phone are not very good,” Chowdhry said. “Google is saying they can optimize a handset for customers and give them instant access to what is valuable to them.”

A phone from Google would also be a way to keep pace with Apple, which is expected to announce a cell phone sometime in the first part of next year.